I sincerely believe that a majority of business-savvy Americans who regularly read the New York Times believe that President Obama should have selected Paul Krugman as his Treasury Secretary.Unlike Timothy Geithner (or chief economic advisor, Lawrence Summers), Krugman was not a part of the rogue operations on Wall Street that brought the world economy to its knees ...AND he was the 2008 winner of the Nobel Prize in Economic Sciences!

Even though Krugman wasn’t offered this post (and one has to wonder why not), in his New York Times columns and blogs (and an open letter published in RollingStone magazine) Krugman has repeatedly weighed in with free advice.And, with one anomalous exception, his Times articles have been consistently negative on Obama’s bailout and stimulus plans.Below I’ve cut and pasted a few lines from seven recent Paul Krugman columns and one of his latest blogs.

February 8th: “Even if the original Obama plan ... had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy ... Yet the centrists did their best to make the plan weaker and worse.”

February 12th: “Officially, the administration insists that the plan is adequate to the economy’s need. But few economists agree.”

February 19th: “To be sure, the Obama administration is taking action to help the economy, but it’s trying to mitigate the slump, not end it.”

February 27th (anomalous praise): “...I don’t blame Mr. Obama for leaving some big questions unanswered in this budget. There’s only so much long-run thinking the political system can handle in the midst of a severe crisis; he has probably taken on all he can, for now. And this budget looks very, very good.

March 5th: “...there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds.”

March 22nd: “If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the ‘cash for trash’ plan...”“...it fills me with a sense of despair.”

March 23rd: “...administration officials keep saying that there’s no subsidy involved, that investors would share in the downside. That’s just wrong.”

At one point Amy asked (likely by pre-agreement): “And this issue of counterparties, a word we’re just learning right now, that AIG gets all of these billions of dollars, and they use some of it to pass through to banks once—well, to entities like Goldman Sachs, to UBS, which had to pay a massive fine to the US government, so we’re paying their fine for violating us?”

I won’t reproduce Paul’s answer here, but rather I want to emphasize that the word counterparty, which Amy is apparently just learning, is a terminology used in the discussion of Credit Default Swaps (CDS). And I want to make the point that Krugman has never mentioned CDS in any of his columns ...OR the notional amount of the “fines” that A.I.G. and the big banks REALLY want us taxpayers to pay them for their having “violated us.”

So why didn’t Amy call the “elephant in the room” by its real name: CDS?

Well, once before I’ve argued that the big businesses that own the mainstream media in general, and the NY Times in particular, have likely banned Krugman from ever mentioning such ugly issues as the existence of evidence for widespread election fraud or the existence and significance of CDS, so long as he remains on their payroll.

In an earlier OpEdNews column I have written about CDS and given some links to authoritative sources of information about them.So here I will only explain the connection between the code word counterparty and the true “elephant in the room.” Apropos, here below are some passages from an extremely informative article by Thomas Tan:

“[C]redit default swaps are not normal insurance policies, each side can trade them to make a quick profit (spread) if there is a willing counterparty [emphasis added]. Commonly after the original CDS contract is engaged, each side of the original two parties will try to engage another party to further hedge their bet and earn a small spread, pretty soon there are layers of layers of counterparties involved, with total notional amount increasing several fold, and no one knows who they are really dealing with anymore.”

(snip)

“The market cap of GM is only about $11B. However, based on estimates in the CDS market, there are about $1 trillion in CDSs betting on GM and their bonds. Any change in GM's situation, will create a rippling effect in this $1T CDS community of GM.”

“There are obviously not $1T of GM properties to act as collateral, so you have to trust all parties involved in this wild casino betting that they won't go under water. As a matter of fact, you better pray, because if one goes under, which is a high probability event, it throws a monkey wrench in the whole community, as everyone is trying to rewind and get out at the same time. It becomes a ‘no way out situation’”.

So Tan explains how trading of CDS with the idea of grabbing quick profits can have spun up the notional values of these CDS many times larger than their values when first issued.

Now the initial value of all freshly issued CDS is well enough known to be about $45 trillion, whereas in consequence to their having been extensively traded they are estimated to have ballooned to a notional value of as much as $500 trillion!Putting this into perspective, the U.S. GDP – and the U.S. money supply – is “only” about $15 trillion, the GDPs of all nations in the world sum to approximately $50 trillion, and the total value of world's stock and bond markets is “only” slightly more than $100 trillion.

So, far, far worse than taxpayer bailout funds being used to pay just the bonuses to the very folks responsible for this mess, it is strongly looking as though much of the bailout moneys going to A.I.G., Goldman Sachs, USB, and other big banks may be largely to pay off counterparties to CDS contracts.If so, then the government is using taxpayer money as a down payment on a debt – not of the taxpayers’ making – amounting to 3 to 33 times the current U.S. money supply!

Given the impossibility of ever paying such a debt in full without driving the dollar below the Mexican peso, it is high time to declare the taxpayers bankrupt, pay the winning counterparties to the CDS a few taxpayer pennies on the dollar – or better still nothing at all (after all it was the banks, not the taxpayers who were engaged in this reckless form of gambling) – and then restart the economy the way Paul Krugman has laid out.

Post Script: On Monday George Soros published a very instructive column in the Wall Street Journal explaining the perils of CDS and explaining how A.I.G. went wrong, concluding that “CDS are toxic instruments whose use ought to be strictly regulated” by requiring that “Only those who own the underlying bonds ought to be allowed to buy them.” But future regulation will not get us out of the current mess ...that is unless these regulations were to be applied retroactively.

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Ph.D. in Physics, Brown University, 1966. Fellow, American Physical Society. Fellow, American Association for the Advancement of Science. Fellow, American Ceramic Society. Research Physicist at Naval Research Laboratory (NRL), Washington, DC, (more...)